Universal Health Services, Inc. v. Escobar

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Issues 

Should the scope of the False Claims Act be expanded to include noncompliance of staffing regulations?

Oral argument: 
April 19, 2016

The U.S. Supreme Court will consider whether the False Claims Act (“FCA”) applies to fraudulent misrepresentation in payment claims due to violations of staffing regulations for medical centers. Petitioner Universal Health Services argues that the basis for liability stemming from the FCA does not allow for the implied certification theory, under which liability may be based on merely filing for payment, and thus should merit reversal of the judgment below. On the other hand, respondent Escobar contends that UHS knowingly and materially committed fraud under the FCA provisions notwithstanding the absence of an express fraudulent statement. This case will determine whether businesses that provide services to the government will be subject to FCA liability and will establish the range of remedies available to qui tam litigants under the FCA.

Questions as Framed for the Court by the Parties 

  1. Is the “implied certification” theory of legal falsity under the False Claims Act, 31 U.S.C. § 3729 et seq., viable?
  2. If the “implied certification” theory is viable, can a government contractor’s reimbursement claim be legally false under that theory if the provider failed to comply with a statute, regulation, or contractual provision that does not state that it is a condition of payment; or does liability for a legally false reimbursement claim require that the statute, regulation, or contractual provision expressly state that it is a condition of payment?

Facts 

Yarushka Rivera (“Rivera”), the daughter of relators Carmen Correa and Julio Escobar (“Escobar”), was a member of MassHealth, Massachusetts’ Medicaid program, and in 2007 received mental health support at Arbour Counseling Services (“Arbour”), which was owned and operated by petitioner Universal Health Services (“UHS”). See United States ex rel. Escobar v. Universal Health Servs., 780 F.3d 504, 508–09 (1st Cir. 2015). Rivera obtained counseling from Maria Pereyra (“Pereyra”), despite Pereyra’s being unlicensed to practice; after Rivera complained about not receiving adequate care, Escobar met with the clinical director, Edward Keohan (“Keohan”). See Id. at 509. Escobar started to worry that Keohan’s staff was unsupervised and that Keohan was unaware of Rivera’s treatment. See Id. Pereyra was replaced with Anna Fuchu (“Fuchu”), who misrepresented herself as a licensed psychologist with a Ph.D. and treated Rivera for what Fuchu diagnosed as bipolar disorder. See Id. Months later, when Rivera’s problems were not assuaged, Fuchu referred Rivera to Maribel Ortiz (“Ortiz”), who prescribed a medication called Trileptal despite Ortiz’s being unlicensed and ineligible for board certification. See Id. Rivera took the medication and soon had a problematic reaction to the drug. See id. She called Ortiz for guidance twice, but Ortiz was unavailable and never returned the calls. See Id. As her condition worsened, Rivera decided to stop taking the medication and had a seizure on May 13. See Id.

Escobar voiced the family's complaints to UHS and suspected that none of the staff members in Arbour were supervised. See Id. In response, Keohan directed Arbour’s psychiatrist, Maria Gaticales, to supervise Ortiz. See Id. Rivera then returned for treatment and suffered a fatal seizure in October 2009. See Id. After Rivera’s death, Escobar talked with Anna Cabacoff, a social worker who informed them that the staff who had treated Rivera were not properly licensed to treat patients without supervision. See Id. at 510. Escobar filed complaints with various state agencies, including the Department of Public Health (“DPH”) and the Division of Professional Licensure (“DPL”). See Id. DPH launched an investigation and found that Arbour had violated fourteen regulations and validated Escobar’s claim. See Id. As a result, DPH and Arbour came to an agreement to resolve these problems where both Koehan and Fuchu entered into a consent agreement with the DPH, which disciplined both individuals for their transgressions. See Id. On February 2013, Escobar filed a second amended complaint, asserting that UHS fraudulently misrepresented their billed services in violation of the Massachusetts and the federal False Claims Act. See Id. at 510–11. The district court wholly dismissed the complaint, ruling that because there were no signs of UHS’ billing being part of the conditions of payment within the relevant regulations, Escobar’s claims failed on the merits. See Id. at 511. Escobar then appealed to the First Circuit Court of Appeals. See Id. at 512. Upon appeal, the court reversed the district court’s decision and ruled that common law demonstrates that a healthcare provider’s dereliction of the conditions of payment through, among others, the staffs’ noncompliance of regulations, is enough to show that a claim for reimbursement is false. See Id. at 517. UHS then appealed to the U.S. Supreme Court. See Petition for a Writ of Certiorari at 1.

Analysis 

In this case, the Court will determine whether qui tam actions under the False Claims Act are subject to the “implied certification” theory of liability. See Brief for Petitioner, Universal Health Services, Inc. at 28–29. As opposed to the “express certification” theory, in which liability attaches to an improper assertion of compliance with payment claim requirements from the government for services rendered, the implied certification theory allows for liability when an improper assertion of compliance was not stated outright but implied by merely filing for payment. See Id. at 36; Brief for Respondent, Julio Escobar and Carmen Correa at 28. Universal Health Services decries the use of implied certification for FCA claims, viewing it as inconsistent with the statute’s plain text and the legislative history behind the most recent major revision of the FCA. See Brief for Petitioner at 28–29, 35. In contrast, Escobar asserts that the plain text of the FCA comports with a theory of implied certification, arguing that there is an affirmative duty to disclose failures to comply with the government’s conditions for payment to avoid deceptive or misleading practices. See Brief for Respondent at 26–28.

Discussion 

The U.S. Supreme Court will consider whether the False Claims Act (“FCA”) applies to fraudulent misrepresentation in violation of staffing regulations. This case will determine whether businesses that provide services to the government will be subject to FCA liability and the range of remedies available to qui tam litigants, private parties who bring action on behalf of the government, under the FCA.

UNDERMINING HEALTHCARE BUSINESSES OR VULNERABLE PATIENTS?

According to the American Health Care Association and the National Center for Assisted Living (“AHCA/NCAL”), in support of petitioner, affirming the judgment below would undermine healthcare businesses that depend on federal programs like Medicaid and Medicare. See Brief for Amici Curiae American Health Care Association et al., in Support of Petitioner at 10. The AHCA/NCAL assert that the high costs of litigation resulting from FCA violations will dissuade businesses from using meritorious defenses and coerce businesses to settle rather than proceed with litigation. See Id. at 11. Furthermore, according to American Hospital Association et al., affirming the decision below will allow opportunists to take advantage of the complexity of the Medicare and Medicaid system and make money off of healthcare providers. See Brief for Amici Curiae American Hospital Association et al., in Support of Petitioner at 19.

In contrast, according to the AARP, in support of respondent, the FCA is the most successful tool to prosecute fraud against the government. See Brief for Amicus Curiae AARP, in Support of Respondent at 4. In addition, according to the AARP, the FCA prevents recidivism of fraudulent actions because of its compliance obligations and is integral towards the protection of vulnerable people who need care. See Id. at 5, 12. The AARP then asserts that if the court reverses the decision below, much of the development in the standard of healthcare that stems from the prosecution of fraud through the FCA will be undermined and vulnerable people will be hurt in the long term. See Id. at 20. Another implication for patients, according to the Judge David L. Bazelon Center for Mental Health Law (“Bazelon Center”), is that significant staffing violations would be dismissed as “technical” and thus undermine patient safety as a result. See Brief for Amici Curiae Judge David L. Bazelon Center for Mental Health Law ("Bazelon Center"), in Support of Respondent at 22.

ADDITIONAL COSTS VERSUS PROTECTION

Affirming the decision below, according to the American Medical Association, in support of petitioner, could lead to additional costs like frivolous litigation and abuse of the remedial powers of the FCA. See Brief for Amici Curiae American Medical Association et al., in Support of Petitioner at 16. Such costs could then undermine the accessibility to affordable healthcare. See Id. 13. The Generic Pharmaceutical Association argues that another potential cost is that companies that do not do business with the government could also be made liable under the FCA. See Brief for Amicus Curiae Generic Pharmaceutical Association, in Support of Petitioner at 6. Moreover, the Association of Private Sector Colleges and Universities contends that an affirmance of the lower court decision would displace current remedial measures for noncompliance of regulations. See Brief for Amicus Curiae Association of Private Sector Colleges and Universities, in Support of Petitioner at 21.

On the other hand, the Bazelon Center argues that if the court affirms the decision below, it would incentivize whistleblowers to “report knowing and material misconduct” that they otherwise would not have reported. See Brief of Bazelon Center at 27–28. Also, according to Senator Charles E. Grassley, if the court reverses the decision below, it can help unqualified participants of federal programs escape liability for fraud and thus cause the federal government to miss out on the opportunity to recover taxpayer funds. See Brief for Amicus Curiae U.S. Senator Charles E. Grassley, in Support of Respondent at 10.

Conclusion 

This case will determine whether the implied certification theory of liability will apply to qui tam litigants bringing cases under the False Claims Act. See Brief for Petitioner, Universal Health Services, Inc. at 28–29. Universal Health Services argues that implied certification cannot be reconciled with the plain text of the FCA and the legislative history behind it, instead asserting that liability can attach only to an express assertion of noncompliance with government-mandated payment conditions. See Id. at 28–29, 35. Escobar contends that nothing in the text of the FCA, common law, or legislative history invalidates implied certification, which is necessary to preserve the government’s and qui tam litigants’ ability to fight against a broad spectrum of fraud. See Brief for Respondent, Julio Escobar and Carmen Correa at 22–23, 32–34. The Court’s ruling could impact the types of cases that can be brought by qui tam litigants under the FCA and induce changes in the payment clauses and conditions in contracts negotiated between the government and providers for goods and services. See Id. at 38–40; Brief for Petitioner at 39–41.

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